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Finance-Growth-Crisis Nexus in Asian Emerging Economies: Evidence from VECM and ARDL Assessment

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Author Info

  • Takashi Fukuda

    ()
    (3-35-13 Kengun, Kimamoto-shi, Kumamoto-ken 862-0911, Japan)

  • Jauhari Dahalan

    ()
    (College of Business, UniversitiUtara Malaysia, 06010 UUM Sintok, Kedah, Malaysia)

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    Abstract

    This paper examines the causal relationship between financial development, economic growth and financial crisis in the five Asian emerging economies (India, Indonesia, South Korea, Malaysia and Thailand) during the period 1982 to 2007. All of these countries are known as emerging economies with well known financial crisis episodes (i.e., India's 1991 crisis and the Asian 1997 crisis). The summary indicators of financial development, financial crisis and financial repression are constructed through the principal component approach. The cointegration and Granger causality analysis are conducted by using two techniques of vector error correction model (VECM) and autoregressive distributed lag (ARDL). The main findings are: (1) the direction of the finance-growth nexus is country-specific; (2) deeper financial development can lead to financial crisis; and (3) financial crisis has a negative impact on economic growth (except Korea for the last two). On policy implication, we ascertain that the growth effect of financial deepening should be appraised with the view that financial deepening could gravitate toward financial crisis.

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    Bibliographic Info

    Article provided by Technological Educational Institute (TEI) of Kavala, Greece in its journal International Journal of Economic Sciences and Applied Research (IJESAR).

    Volume (Year): 5 (2012)
    Issue (Month): 2 (August)
    Pages: 69-100

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    Handle: RePEc:tei:journl:v:5:y:2012:i:2:p:69-100

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    Related research

    Keywords: Finance-growth nexus; financial crisis; Asia; VECM; ARDL;

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    1. Fase, M. M. G. & Abma, R. C. N., 2003. "Financial environment and economic growth in selected Asian countries," Journal of Asian Economics, Elsevier, vol. 14(1), pages 11-21, February.
    2. James B. Ang & Warwick J. McKibbin, 2005. "Financial Liberalization, Financial Sector Development And Growth: Evidence From Malaysia," CAMA Working Papers 2005-05, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. Luintel, Kul B. & Khan, Mosahid, 1999. "A quantitative reassessment of the finance-growth nexus: evidence from a multivariate VAR," Journal of Development Economics, Elsevier, vol. 60(2), pages 381-405, December.
    4. Konstantinos Kassimatis & Spyros Spyrou, 2001. "Stock and credit market expansion and economic development in emerging markets: further evidence utilizing cointegration analysis," Applied Economics, Taylor & Francis Journals, vol. 33(8), pages 1057-1064.
    5. Demetriades, Panicos O. & Hussein, Khaled A., 1996. "Does financial development cause economic growth? Time-series evidence from 16 countries," Journal of Development Economics, Elsevier, vol. 51(2), pages 387-411, December.
    6. Rousseau, Peter L. & Vuthipadadorn, Dadanee, 2005. "Finance, investment, and growth: Time series evidence from 10 Asian economies," Journal of Macroeconomics, Elsevier, vol. 27(1), pages 87-106, March.
    7. James Crotty, 2008. "Structural Causes of the Global Financial Crisis: A Critical Assessment of the ‘New Financial Architecture’," UMASS Amherst Economics Working Papers 2008-14, University of Massachusetts Amherst, Department of Economics.
    8. Yang, Yung Y. & Yi, Myung Hoon, 2008. "Does financial development cause economic growth? Implication for policy in Korea," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 827-840.
    9. Prabir Bhattacharya & M. N. Sivasubramanian, 2003. "Financial development and economic growth in India: 1970-1971 to 1998-1999," Applied Financial Economics, Taylor & Francis Journals, vol. 13(12), pages 925-929.
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